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Let's get it sorted
I our opinion the whole issue of self employment status should be put out to consultation with a view to getting it sorted once and for all. There is enough case law and expert opinion to form a set of rules and tests to put it into statute so everyone can move forward with confidence. The business world needs certainty to allow it to trade out of this recesson. The hardest hit industry is the constructon industry and if this country is to recover this sector needs to move forward with confidence, with fair competition and without the threat of financial uncertainty.
a&c chartered accountants
The best way
forward in my view is that the issue of employment status is for HMRC to keep their noses out. After all the only reason all this palaver is going on is the intent of HMRC to raise any money they can however they can.
Do I understand this correctly?
So if an individual, working via a one-man limited company, works via an agency, the key is the substitution right inherent in the agency/client contract, rather than any between the contractor and agency?
On another aspect:
"The fact that original consultant had complete freedom to arrange for a substitute if he wished, even if he did not actually do so, constitutes in my view an unfettered right of substitution"
So we are definitely back to legal substance rather than substitution in practice then? Fine.
I think the two contracts are different.
One is to decide whether Agency rules apply and the other to decide whether IR35 applies. I assume both contracts had a sustitution clause. Had that not been the case HMRC might have had some grounds for appealing.
Still it does look as though HMRC are losing the battle in deciding who should be self-emploed.
Shades of substitution
The way I read it, it was the consultant's "unfettered" right of substitution that won the case for the agency. If the right is truly unfettered, then it should not matter whether the right has been exercised or not.
Contrast that with a typical IT consultant where the end-user would probably wish to vet any substitute he/she was proposing. The right of substitution would then not be unfettered and it would be necessary to show that it had been exercised in order to prove the clause was valid.
I'm not an employment law expert but that sounds like an important distinction to me, and probably applies to both IR35 and the agency rules.
Chris
Then you come up
against the word substitution and who can be a substitute. Obviously a brick layer cannot be a sustitute for a computer bod. I can't see how it matters if the substitute needs to be vetted and really you would only need to add like for like in the substitution clause for it to be valid. I'm sure the tribunal would take a commonsense approach.
Missing the point a bit
Of course substitutions must be like-for-like. That goes without saying. The point I was trying to make is that many end-users need to vet subsititutes as a matter of HR policy (not to mention the security aspects) so the right of substitution is not usually unfettered for contractors even if they propose someone with the right skill-set.
For that reason, I wouldn't have thought this case would impact much on a typical IR35 scenario.
Chris
To that end you
could never have a truly unfettered substitution clause. Especially where children are involved. My understanding is that the consultant did not have to do the work personally and that's where the unfettering comes in. We are talking about Airport duty free shops so I'm sure there would have been some vetting going on.
The only time I feel a substitution clause could be challenged is if the client had specifically asked for that particular person. Then it becomes personal and not services.
Contract for Services
One can only hope that this government starts cleaning up the tax legislation, not least IR35 and employment status.
Meanwhile, we should ensure that our clients have a proper Contract FOR Services in place, with all bases covered, not just the substitution clause, so that any challenge by HMRC can be successfully argued.
I recently spent nearly 2 years arguing ( successfully ! ) that a client's Contract for Services was indeed that, and not a Contract of Service, ie an employment: this was challenged by HMRC notwithstanding that it was carefully drawn up ( with many references to "freelance contractor" ) by the "employer", who then applied PAYE incorrectly ! I included all income in the client's accounts, and subsequently recovered all excess tax and Class 1 NICs.
Personal Service was the point at issue
Rather than getting carried away with general employment status and IR35, I believe that the principle of this case should be focused on prescribed conditions expressed by the UT. These were clearly and mainly based on whether or not the worker was performing the services personally. HMRC appears to have ignored what happened in practice and then apparently adapted their skeleton argument to a scenario after the subsitute was put in place.